What is Counter Intuitive Lending? And Why?

Hard money is a completely counter intuitive way to determine if a loan application and the borrower are good or not.

We have been taught to believe that if you have bad credit, then you probably will not pay your loans on time.

We have also been taught to believe that if you don’t have great income that you stand a higher probability of not paying your loans back.

And, heaven forbid, that you find yourself being labeled as an “entrepreneur” who is always independently searching for the opportunities that others may overlook.

Your income is erratic, you have no real job that pays you a salary on the 1st and the 15th of each month, and your future is cloudy at best. Where do those people go to find funding for inventions?

Think of all of the people in your life who don’t have level income throughout the years.

What about real estate salespeople?

What about automobile salesmen?

And, what about insurance salespeople?

We are a nation of a substantial number of people with no chance of getting a bank loan at all.

And this is so even if the majority of them are good and honest people who will most definitely do all in their power to make the payments for which they are obligated.

Poor Thomas Edison, Alexander Graham Bell, and Vincent Van Gogh, all without jobs and of course, all with life changing science and talent inside of their heads. They would have been turned down by every bank that exists.

Hard money says basically “to heck with all those criteria.”

Did you know that you could lose your job this afternoon?

Did you know that if you miss a payment on your house or car that your credit score could drop from 700 to something in the 600’s as soon as it is reported?

And what if you get sued and the opposing party gets a judgment against you? Again, there goes your credit score.

Banks are making loan decisions based on a snapshot of your attributes any of which can change in one day.

You would get a loan approval today, but just wait until tomorrow when you would get a turndown based on the same facts.

Hard money says that the only thing that doesn’t change much from day to day are the values of the items that are pledged for collateral.

Your house will not lose 50% of its value tomorrow.

Your account receivable that is due your company for its products or services will not become valueless tomorrow if you have done the proper work on the company that owes you money.

And your apartment building will not become valueless immediately unless all your tenants move out tonight and there is a fire tomorrow (and even in this situation, you will receive insurance proceeds).

Why focus on the most risky of these two ways of evaluating a borrower and the overall loan request, says hard money lenders. Lets focus on the safest way to ensure that the loan will be repaid regardless of what is happening in the life of the borrower.

Therefore, private lenders known as hard money lenders take advantage of this anomaly in the marketplace and focus on the collateral which is offered for the loan. It makes a decision easy and fast to make and is ultimately much safer for the private lender than is a loan made by a bank based on a group of items that can change overnight.

That is why a good hard money lender on your team is worth his weight in gold. You’ll have money forever if you merely fit within his criteria.

More wisdom from LaunchPad Café, LTD’s hard money lending division.